Department of Economics (ECON) Udgivelsesår

In Denmark and in many countries around the world, housing markets are of considerable
importance for households and policy-makers alike. As the boom and bust in the US and
Danish housing market so aptly demonstrated, disruptions in the housing market potentially
have wide-ranging consequences for individual households and for the aggregate economy.
Housing is important because we all have to live somewhere, but also because it serves as a
considerable source of both wealth and debt. As such, housing market policy can not only
create vast benefits for many, but can also have substantial negative impacts for all, and
should therefore be a topic of major interest for economists and policy makers alike.
This Ph.D. thesis, entitled “Essays on Housing Markets”, analyzes the Danish housing
market during the 2000s, with a focus on how policy changes affected house prices and
how changes in house prices affect households. While independent, each chapter in this
thesis attempts to contribute to our understanding of how housing markets function, and
has important lessons for policy-makers and economists around the world.

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This Thesis consists of an introduction followed by three independent chapters. Each chapter
is a self-contained paper that can be read independently. They cover different topics of
international economics with a specific focus on multinational production and international
trade. A common feature to all the papers is that they are micro-based empirical analyses of
the effects of globalization on the competitiveness of companies. The first and last chapters
are solo papers, while the second is coauthored with Friedrich Bermann, PhD student at
Copenhagen Business School. The first paper studies the impact of foreign direct investment on the intensity of competition
in the host economy. In this chapter I use firm-level data of Romanian manufacturing
companies active between 2001 and 2008 and I measure the impact of foreign ownership on
the market power of affiliates and local competitors. The empirical evidence shows that foreign
ownership is associated to a higher market power, which I proxy with firms’ estimated
markups. Moreover, I find that higher competition of foreign affiliates is associated to a
decrease in the markups charged by domestic firms. In the second chapter we analyze how the strategy of vertical integration of foreign
multinationals modifies the nature of productivity spillovers perceived by local suppliers
(i.e. backward spillovers). Building on the results of previous research on productivity
spillovers and on multinational production, we argue that backward productivity spillovers
should be weaker if foreign multinationals are vertically integrated in the industry of local
suppliers. We test this hypothesis using a panel dataset of firm-level data of European
manufacturing companies. We find that the vertical integration of foreign multinationals
does in fact modify the intensity of spillovers to local suppliers. Domestic firms benefit only from the activity of foreign clients that are not vertically integrated in their industry.
In the last chapter, I use a detailed dataset of international transactions of Danish
companies to study the impact of Chinese competition on the pricing strategy of Danish
exporters. I also explore the role of quality differentiation in determining the nature and
intensity of this effect. I find that Chinese export represents a source of stiffer competitive
pressure for Danish exporters that are forced to reduce the prices they charge. This effect
depends on the quality of Danish products. I find the producers of low-quality goods reduce
their prices less intensively than producers of high-quality ones. This is because producers
of low-quality varieties react to Chinese competition upgrading the quality of their products.
This mitigates the downward pressure on prices. I finally reconcile these results by using
quality-adjusted prices. Using this measure I find that quality does in fact protect Danish
exporters from the pressure of Chinese competition.

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This Ph.D. thesis, entitled Essays in Household Finance, analyzes the determinants and implications
of investment biases, personal experiences in financial markets, and financing disruptions on
households, individual investors, and entrepreneurs and small business owners.
The first essay of this thesis, Once Bitten, Twice Shy: The Role of Inertia and Personal Experiences
in Risk Taking, with Steffen Andersen and Kasper Meisner Nielsen, studies how personal
experiences affect individual financial risk taking. An important concern with pre-existing studies
on the effect of personal experiences on risk taking is the potential bias resulting from inertia and
inattention, which has been shown to be endemic in household finance. If individuals are inert
or inattentive, it is difficult to establish whether changes in risk taking are caused by personal
experiences or whether the change in risk taking is due to inertia and movements in market prices.
To separate the effect of personal experiences from the confounding effect of inertia, we use an
identification strategy that relies on a sample of individuals who inherit a portfolio of risky assets
as a result of the death of their parents. The main advantage of this identification strategy is that
inheritances from estates that hold risky assets alter the active decision from one of choosing to
take risk to one of choosing not to take risk. Our measure of experience derives from investments
in banks that defaulted following the financial crisis. We classify experiences into first-hand experiences,
resulting from personal losses; second-hand experiences, from the losses of close family
members; and third-hand experiences, from living in municipalities where banks defaulted. Our results
demonstrate that experiences gained personally, aside from inertia or common shocks, explain
substantial heterogeneity in individuals’ risk taking.

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This PhD thesis consists of five essays on the economics of Power System Flexibility, a topic that has
traditionally been addressed from a technical perspective by engineers, system planners, electricity industry
stakeholders and energy policymakers interested in the integration of Variable Renewable Energy. While
significant progress has been made in the understanding and characterization of
exibility, its economic
properties and the required incentives to provide it have not been suficiently analyzed. The present work
aims at filling this gap.

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This thesis consists of three independent chapters on the elicitation of individual discount
rates and on the estimation of gambling prevalence in Denmark.
The first chapter, “Discount Rate Sensitivity to Background Consumption and Consumption
Smoothing,” studies the sensitivity of individual discount rates with respect to
background consumption and consumption smoothing. I use simulated choice data from
standard decision tasks in time preference experiments and show that individual discount
rates are sensitive to assumptions with respect to background consumption and consumption
smoothing if the utility function is non-linear and exogenous. However, if discount rates
and the utility function are elicited jointly, discount rates are robust to assumptions on
time-invariant background consumption and consumption smoothing. The analysis clarifies
mixed conclusions from previous studies and indicates which elicitation methods provide
robust estimates of individual discount rates.

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This paper examines how trade unions shape the volatility of wages over the business cycle. I present a dynamic stochastic model of the labor market that integrates two main features: search frictions and trade unions. Because of search frictions, each job match yields an economic surplus that is shared by the bargained wage. Therefore, I can decompose the volatility of wages into two components: the volatility of the match surplus and the volatility of the worker share of the surplus. Starting from the unions' objective function, I demonstrate that, under collective wage bargaining, the worker share is endogenous and countercyclical. Consequently, when the economy is hit by a shock, the dynamics of the worker share partially counteract the dynamics of the match surplus and this mechanism delivers endogenous wage rigidity. The model thus sheds new insights into two business cycle features: the union wage premium fluctuates countercyclically, and employment is more cyclically sensitive but less persistent when wages are collectively bargained.

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This paper examines the effect of bid regulations on the range of potential equilibrium prices in a multi-unit uniform price auction with heterogenous bidders. General bid caps destroy equilibria with prices above the bid cap and create new equilibria with prices way below the cap. A cap only for larger rms does not guarantee market prices below that cap. A suffciently high bid floor only for smaller firms destroys some or all pure strategy equilibria despite their prices being above the bid floor. With a general bid floor this happens only with considerably higher bid floors.

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This paper matches a comprehensive Danish employer-employee data set with individual
crime information (timing of offenses, charges, convictions, and prison terms by crime type) to
estimate the impact of job displacement on an individual’s propensity to commit crime. We
focus on displaced individuals, i.e. high-tenure workers with strong attachment to their firm,
who lose employment during a mass-layoff event. Pre-displacement data suggests no evidence of
endogenous selection of workers for displacement during mass-layoffs: displaced workers’ propensity
to commit crime exhibits no significantly increasing trend prior to displacement; and the
crime rate of workers who will be displaced is not significantly higher than the crime rate of
workers who will not be displaced. In contrast, displaced workers’ probability to commit any
crime increases by 0.52 percentage points in the year of job separation. The effects are driven by
the propensity to commit property crime, which increases by 0.38 percentage points, or about
26% of the population-wide average. The substantial post-displacement earnings losses, coupled
with the effects on property crime, are consistent with Becker’s (1968) economic theory of crime.
Marital dissolution is more likely post-displacement, and we find small intra-family externalities
of adult displacement on younger family members’ crime. The impact of displacement on crime
is stronger in municipalities with higher capital and labor income inequalities.

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This thesis focuses on individuals’ educational achievements and labor market outcomes in a Danish
context. Particularly, the thesis aims at determining the returns to specific tertiary educational
decisions and understanding the mechanisms underlying such decisions. These related objectives are
addressed using econometric methods applied on Danish micro data. All four chapters are empirical
studies and combine data from different sources. The main source of data is an administrative data
set obtained from Copenhagen Business School (CBS) that contains detailed educational information
on students enrolled at CBS. I combine this data with register data obtained from Statistics Denmark.
The educational data is the core of Chapter 2, Chapter 3, and Chapter 4 and defines the sample in
these chapters. Chapter 1 relies exclusively on data from Statistics Denmark.
Chapter 1 (a joint work with Anders Sørensen from Copenhagen Business School) estimates the
wage premium of those with a master’s degree in business economics and management when compared
to the wages of those with master’s degrees in other fields in the social sciences. By means of an
Instrumental Variable (IV) approach, we identify the returns to a business education by addressing
the endogenous selection of master’s programs. Using season of birth as an exogenous determinant of
master’s degree choice, we find that a master’s degree in business economics and management results
in a wage premium of around 12% compared to other master’s degrees in the social sciences. Moreover,
we find that the probability of private sector employment is significantly larger for individuals with a
master’s degree in business economics and management. Finally, in contrast to the literature that finds
significant reductions in the gender wage gap when controlling for educational fields, controlling for a
master’s degree in business economics and management does not affect the large and robust gender
wage gap prevalent in our sample.

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With a limited budget and resources, governments must decide how to allocate funds across a
variety of factors which benefit society such as education, crime deterrence, and public safety. Each
increase in spending on one area comes with the knowledge that this money cannot be spent on
social problems in another area. As such, externalities and unexpected spillover effects impact the
costs and benefits of public spending to society and may have large and meaningful implications on
how to most effectively allocate resources across a multitude of outcomes. For example, an increase
in education corresponds to an increase in the opportunity cost of engaging in criminal activity,
decreasing the probability an individual commits crime. Likewise, loss of employment decreases the
opportunity cost of engaging in criminal activity, increasing the probability an individual commits
crime. Discrimination towards immigrants can impact their employment prospects which, in turn,
impacts their decision to further pursue education. Identifying how these individual level factors
have an impact on society is key to informing and designing effective public policy.
This Ph.D. thesis, entitled “Essays in Education, Crime, and Job Displacement”, analyzes the
determinants and social implications of these three factors. While independent, each essay within
this thesis examines the impact of factors such as education, in terms of reduced crime, job loss, in
terms of increased crime, and discrimination, in terms of its impact on the educational attainment
of immigrants, on society.

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We examine the impact of discrimination on labour market performance when workers are subject to a risk of losing skills during an unemployment experience. Within a search and matching framework, we show that both natives and immigrants are affected by discrimination. Discrimination in one sector has positive spill-overs, inducing employment to increase in the other sector and
the effect on labour market performance therefore depends on whether discrimination is present in only one sector or in both sectors. Discrimination may induce workers to train more or less than natives after having lost their skills, dependent upon which sector there is discrimination. Net output tends to the be most negatively affected by discrimination among high-skilled workers.

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This dissertation is at the crossroads of electricity markets, industrial organization
and real options literature. The main contribution of the dissertation
is to investigate the effects of market power when the strategic producers
own a portfolio of generation technologies and have ability to affect prices
while facing demand or production uncertainties.
The dissertation presents three chapters that deal with the short and long
term impacts of market power in the electricity markets. Specifically, the first
chapter provides a thorough look at the start up and shut down decisions of
the peakload generators and paves way to a better assessment of the extent
of the market power of a strategic firm. The second chapter shows the significance
of wind power generator ownership on the peakload firms production
decisions and market outcomes. Finally, the third chapter investigates how
the investment decisions and technology choice differ between fixed and flexible
production generators. Overall, this dissertation mainly adopts a real
options methodology where the optimal decisions of the producers have a
direct impact on the electricity prices contrary to the vast majority of the
real options literature.
The first chapter studies the effects of operational characteristics of power
plants on optimal dispatch decisions and estimation of market power. Specifically,
I give a real options model to show how operational characteristics of
power plants and market uncertainty affect start up and shut down decisions.
I show that in the case of ownership of multiple generation technologies, optimal
dispatch decisions cause capacity withholding for the peakload generator
in both the monopoly and the social planner cases. Moreover, the difference
between the start up trigger prices for the social planner and the marginal
cost reveals significant levels of real options premium. Overall, the existence
of significant real options premium levels shows that ignoring market uncertainties
and operational characteristics of individual generators, results
in overestimating the extent of market power of the firms in the industry.
Therefore, I conclude that real options analysis can be an asset for more
accurate investigations and decisions on the exercise of market power.
The second chapter shifts the focus to the ownership of wind generators as
the fixed baseload generation in the first chapter is assumed to be replaced
by the stochastic wind generation. Specifically, this chapter investigates the
short term effects of wind generator ownership by the owners of fossil-fueled peakload generators. I show that aggregate wind generator ownership reduces
the positive impact of the wind generation on the market outcomes
and as a result the total peakload production decreases and the market price
increases. Furthermore, when all wind generators are owned by the peakload
firms, the impact of wind generation on the market outcomes vanishes.
Additionally, start up and shut down (suspension) price thresholds are significantly
higher when the owner of peakload capacity also owns a share of
wind power generators. I also find that a feed-in premium support scheme
does not affect the peakload firms production levels and hence the market
outcomes. However, under a feed-in tariff type of support scheme, there is
an increase in the total production and a decrease in the market price.
The third chapter, coauthored with Rune Ramsdal Ernstsen, compares the
investment timing and the optimal level of investment for a hypothetical monopolist
and a social planner that have a one-time opportunity to invest in
a generator with either fixed or flexible production. It specifically investigates
how the investment triggers, optimal capacities and technology choices
change with the changes to the investment cost function, demand uncertainty
and the level of installed capacity in the market. The main contribution of
this paper is to document that the choice to invest between generators with
fixed or flexible production does not only depend on the differences in costs
for different technologies but also on the differences in operation of those
technologies.
We find that the strategic firm tends to invest at a higher demand trigger
level and lower capacity compared to the social planner for both the baseload
and the peakload investment cases. Hence, the strategic firm is expected to
invest at a later date while incurring lower investment costs. Furthermore,
for both the strategic firm and the social planner, fixed baseload generation
is preferable during low uncertainty cases whereas high uncertainty tends
to result in the choice of flexible peakload generation. We additionally find
that highly convex investment costs greatly diminishes the impact of market
power on the investment decisions.

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Effect of Young Adult Childbearing on the Women’s Labour Market Outcome

Rosenbaum, Philip(Frederiksberg, 2015)

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Resume:

Work interruptions related to birth are expected to affect mothers’ wages directly through
changes in the formation of human capital. This effect is proposed to be exceptionally strong for young
adult childbearing women who are about to start their working careers. This study investigates whether
the long-term socioeconomic problems experienced by women with first childbirth before turning 26
are a reflection of pre-existing disadvantages or are a consequence of the childbearing timing? The
purpose is furthermore to observe whether a new combination of the best practices of earlier studies
on the subject can serve as a better estimation method. This is done by applying a Sister First
Difference estimator while using miscarriages as exogenous variation. This exact design has, to my
knowledge, never been used before to estimate socio-economic effects of childbearing timing. I find no
effects of young adult childbearing on the women’s wages.

This paper explores potential explanations behind the educational gap between young natives and immigrants using two measures, negative attitudes towards immigrants and networking, which may influence natives and immigrants differently. The paper considers, both theoretically and empirically, the impact of negative attitudes and networking taking into account that these parameters may influence high and uneducated workers as well as immigrants and natives differently, creating different incentives to acquire education for the two ethnic groups. Using rich Danish administrative data, this paper finds evidence that greater negative attitudes increase incentives for males to acquire education and that networking also increases immigrant education.

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Inspired by recent regulations in the New York ICAP market, this
paper examines the e ect of price regulations on a multi-unit uniform
price auction. General bid caps reduce the maximum price below the
bid cap, but also the minimum potential market price below the cap.
A bid cap only for the larger rms does not guarantee a market price
below the cap. A su ciently high bid
oor only for relatively small
rms destroys some or all pure strategy equilibria with equilibrium
prices above the marginal costs. With a general bid
oor this happens
only with considerably larger bid
oors.

This paper presents new evidence on trade‐induced automation in manufacturing firms using unique
data combining a retrospective survey that we have assembled with register data for 2005‐2010. In
particular, we establish a causal effect where firms that have specialized in product types for which the
Chinese exports to the world market has risen sharply invest more in automated capital compared to
firms that have specialized in other product types. We also study the relationship between automation
and firm performance and find that firms with high increases in scale and scope of automation have
faster productivity growth than other firms. Moreover, automation improves the efficiency of all stages
of the production process by reducing setup time, run time, and inspection time and increasing uptime
and quantity produced per worker. The efficiency improvement varies by type of automation.

We study the role of vertical structure in determining generating capacities
and retail prices in the electricity industry. Allowing for uncertain
demand, we compare three market configurations: (i) integrated
monopoly, (ii) integrated duopoly with wholesale trade, and (iii) separated
duopoly with wholesale trade. We find that equilibrium capacities
and retail prices are such that welfare is highest (lowest) under
separated (integrated) duopoly. The driving force behind this result
is the risk of rent extraction faced by competing integrated generators
on the wholesale market. Our analysis suggests that vertical structure
plays an important role in determining generating capacities and retail
prices.

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In this paper, we investigate the sorting of workers in rms to understand gender gaps in labor market outcomes. Using Danish employer-employee matched data, we find strong evidence of glass ceilings in certain firms, especially after motherhood, preventing women from climbing the career ladder and causing the most productive female workers to seek better jobs in more female-friendly firms in which they can pursue small career advancements. Nonetheless, gender differences in promotion persist and are found to be similar in all firms when we focus on large career advancements. These results provide evidence of the sticky floor hypothesis, which, together with the costs associated with changing employer, generates persistent gender gaps.